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Florida Commissioner Explains Why Homeowners Rates Are Not Going Down

Florida's insurance commissioner says there are reasons why homeowner rates in the state are not coming down despite reports that insurers are starting to save money on one of their biggest expenses.

And he said that in some instances rates may still go up since some companies have spread increases out over several years.

Chief Financial Officer Jeff Atwater last week asked Kevin McCarty to explain to him why costs have not been dropping this year. Florida hasn't been hit by a hurricane since 2005 and industry reports point out that the cost of reinsurance has dropped by 15 percent to 20 percent this year.

Insurers purchase reinsurance to provide financial backing in case of major claims.

McCarty wrote Atwater last Friday and told him that in some cases insurers are purchasing additional reinsurance instead of passing on the savings to homeowners. He said there is no "firm rule" on how much must be purchased and that rating agencies are requiring some insurers to buy more coverage.

"While the average reinsurance cost might have decreased this year, not every insurance company will experience a drop in its reinsurance costs," McCarty wrote.

He also added that there hasn't been enough time for insurers to reflect the savings in their rates. McCarty says most reinsurance contracts start on June 1.

McCarty did add that some insurers have indicated they plan to reduce rates in some parts of the state. Insurers are required to update their rates once a year. But he also noted that some companies have chosen "to transition large rate increases" over a number of years meaning that a price hike "may be still be warranted."

McCarty also warned that that reinsurance reductions do not "translate into a one-to-one reduction" in rates. He said that one company recently proposed dropping its rates by 8 percent despite having its reinsurance costs go down by nearly 20 percent.

Atwater's office did not immediately respond for comment on Monday. But last week Atwater said that Floridians needed to see a reduction in their insurance bills.

The cost of insurance has been hotly debated on the campaign trail and in the Legislature for years.

Annual reports prepared by Florida's Office of Insurance Regulation show that the department has been approving more than 100 rate hikes a year since 2009, including requests to raise rates by double-digits.

Industry officials argue that insurers in the past did not charge adequate rates to deal with the real risk of covering homes in hurricane-prone Florida. The fragile nature of the market has been exposed by storms such as Hurricane Andrew in 1992, a Category 5 storm that destroyed much of the South Florida city of Homestead, and the series of storms that battered the state in 2004 and 2005.